I’ve written on this subject before but I want to be more thorough this time. There have been too many articles put out lately that discourage people from contemplating a home purchase after doing a short sale. These articles express cynicism about home sellers’ financial habits and cynicism from Realtors as well. Most Realtors doing short sales know how to cover the bases for their client to make sure they’re in a good position to buy a home down the road. Further, in my area (Saint Paul, MN), nearly 39% of homeowners are upside down on their home. Only a small minority of these homeowners who would do a short sale on their home have destroyed credit. All too often unfortunately, they are told that they won’t be able to buy a new home for 2-7 years and, consequently, they let their credit go. This assumption of a long waiting period is not true and serves as harmful information to the homeowner doing a short sale.

Prior to December 16th of 2009 there was no FHA rule prohibiting homeowners who had a recent short sale from purchasing a home. Few took advantage of this because the lending industry was wary and wanted clarification from HUD on whether this was OK or not. On December 16th of 2009, HUD gave that clarity with Mortgagee Letter 09-52 which allows a people to buy a home after a short sale if “they were current on their mortgage and other installment debts at the time of the short sale of their previously owned property, and the proceeds from the short sale serve as payment in full.” One caveat to this; FHA will not allow the new loan if the borrower did a short sale “simply to take advantage of declining market conditions, and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance.” When this rule came out, many thought that despite the fact that HUD allowed for a purchase subsequent to a short sale, no lenders would go along with it. They were wrong. Most lenders have adopted the rule as outlined in the mortgagee letter without additional underwriting guideline overlays.

So that’s great for people who didn’t have late payments on mortgages or installment debt in the 12 months preceding the closing of the short sale but even if you have had late payments you may not even need to wait the 3 years FHA requires now that the Back to Work extenuating circumstance has been outlined. In this qualifying case, the waiting period is only 1 year even if there were late payments. For more on this, see my article about the FHA Back to Work program.

But this did not deter the naysayers. They would assert that even if HUD and lender guidelines allow for it, the IRS would kill the deal. It’s true that a short sale can create a taxable event. Because I am not a CPA or a tax lawyer, I will refer you to IRS Publication 4681 which explains in detail what the tax consequences can be after a short sale. There are handy scenarios, examples and useful information of every kind. So a buyer who has a tax lien can’t buy a new home, right? Wrong.

According to the FHA mortgage credit analysis handbook 4155.1 REV-5, 2-5 (B), a homebuyer with a tax lien is eligible for a FHA loan when, “the delinquent account is brought current, paid, otherwise satisfied, or a satisfactory repayment plan is made between the borrower and the Federal agency owed and is verified in writing. Tax liens may remain unpaid provided the lien holder subordinates the tax lien to the FHA-insured mortgage. If any regular payments are to be made, they must be included in the qualifying ratios.” It goes onto read, “”Since the IRS routinely takes a second lien position without the necessity of independent documentation, eligibility for FHA mortgage insurance will not be jeopardized by outstanding IRS tax liens remaining on the property unless the lender has information that the IRS has demanded a first-lien position.” That’s right. The lien can be left unpaid and it will automatically subordinate to the new FHA loan without the need of additional paperwork.

But the naysayers are not yet done. They will say, “Oh but with a short sale and a tax lien, their credit will be obliterated. There’s just no way they’ll qualify.” All a borrower needs is a 620 middle credit score. Some lenders (I’m not one of them), will even go lower. I’m going to address this objection with an anecdote (and really, this is not an isolated incident – sadly, it happens more common than you think.) I recently had an applicant pull a 622 middle score. On this credit report was a judgment and 19 collections. That’s it. This person had defaulted on every extension of credit ever given and still pulled a 622. Not that an IRS tax lien and short sale aren’t damaging but, come on, they far from rule anything out.

My point in writing this is to serve as a reminder that in a lot of areas nearly two fifths or more of us are upside down, may want to move and are not deadbeats. Also, I wanted to get this out there to provide the facts to dispel the myth that homeowners who do a short sale are only welcome to take a timeout from homeownership. This is not their only choice. They’re welcome to continuing homeownership in the same way as the rest of us, . . . . Conditionally.

For more on your specific situation, contact me directly using the contact information below or use the comment box at the bottom and I’ll reply shortly.

Here are some related articles on this topic that I think you might find interesting:

Here are some comprehensive “waiting periods” associated with buying after a short sale:

If you had no late payments on your installment debt and mortgage debt in the 12 months preceding your short sale, you can likely buy right now using FHA or VA financing.

If there were late payments and you are VA eligible and can document extenuating circumstances, it would be a 1 year waiting period.

If there were late payments and you are eligible under the Back to Work program for FHA, it would be a 1 year waiting period

If there were late payments and you aren’t VA eligible you either need a 2 year waiting period and 20 percent down or a 2 year waiting period, 10 percent down, the ability to document extenuating circumstances and your loan gets an automated underwriting approval from Fannie Mae.

If there were late payments and none of the preceding scenarios work, FHA will work after 3 years.

If there were late payments and you are VA eligible but couldn’t document extenuating circumstances, you could buy after 3 years so long as the previous mortgage that settled for less than the amount due wasn’t a VA mortgage because if it was, the VA eligibility would need to be restored by paying back the deficiency.

If there were late payments and none of the preceding scenarios are workable, then the availability of conventional financing is restored after 4 years.

For more on your specific situation, contact me directly or comment with your situation below.

The Home Buyers Scouting Report® is provided directly to the buyer by HBM II, a licensed national real estate brokerage service company, not to or through a lender. The FREE home finding service is provided directly to prospective homebuyers by HBM II and its real estate brokers, as part of their ordinary real estate brokerage services. HBM II, Inc. works cooperatively with other real estate agents across the United States in attempting to find ready, willing and able buyers for homes listed for sale. The role of the Preferred Loan Officer is to assist in determining a comfortable home price range for Home Buyers Marketing II, Inc. (HBM II) to use when it is searching for property listings within the buyer’s search criteria.

220 Comments

I’ve updated this post, the outlined waiting periods and related articles section to include the new 1 year waiting period for people who did have late payments on their mortgage but want to buy using FHA financing. It’s possible through a tough process that will be known as the Back to Work guideline or Back to Work Program. Here’s a direct link that outlines this program: //the-fha-1-year-waiting-period-after-short-sale-bankruptcy-or-foreclosure-back-to-work/

Michael from Dacula, GA, United States

August 11, 2013

Hi,
Really informative website! I am working with someone now trying to get my home sold. My house is not currently on the market mainly because the house is not worth the amount that I owe; since everyone has already foreclosed or short sale their homes in my neighborhood. HOw can I sell my home? I am current and have never been late on my mortgage payments. I have a Fannie mae or freddie mac loan. It is not FHA. I live in metro Atlanta, GA. There has to be a way out for people who would like to move and have been current on their payments.

First of all, I’m sorry for not getting back to you sooner. I was out of town for a week and it really put me behind. If your current loan is with Fannie Mae or Freddie Mac, you’re in luck. They won’t require you to be late in order to do a short sale. They’ll require that you prove a hardship or imminent danger of default. For more on this, here’s a thorough article on that topic: //do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/.

After you’ve completed your short sale, you’d be eligible for FHA financing as outlined in this article. If you’re eligible for VA financing, you should read this article too: //buying-a-home-after-a-short-sale-using-a-va-mortgage/.

If you’re buying in GA, I should have my license there wrapped up within 30 days. I just submitted the final parts of my application.

Wendy Keiser from Chula Vista, CA, United States

August 1, 2013

I would like to know when we can buy a house again. We had a short sale which closed in Dec. 2011. We also had a bankruptcy which was discharged in August, 2011 (Chapter 7). We have since re-established our credit (it is close to 700 again). We have opened new credit cards and have been paying on them successfully and been maintaining low balances. We have opened two car loans as well. We also plan to put 20% down on our next home purchase. What would you say is our current waiting time?

Underwriting go by the longer of the two applicable waiting periods and I think you’ll find this link helpful: //waiting-periods/. With 20% down (in fact you might be able to do 10% down), AND if you can document extenuating circumstances, 2 years using Fannie Mae backed financing would be the shortest.

I am assuming that there were late payments on the mortgage in the 12 months preceding the closing on the short sale. If there weren’t, you could use FHA 12 months from the discharge date of the bankruptcy. FHA would require 3.5% down. This would also be true of VA financing if you or a veteran spouse were eligible for VA financing. VA would not require a down payment.

So if there were late payments, you can document Extenuating Circumstances, then Jan of 2014 is the magic month. If there weren’t late payments then next month is your magic month.

Jaime from Green Isle, MN, United States

May 10, 2013

We have a situation that is very confusing. We filed a chapter 13 bankruptcy 3 years ago and included our home in our bankruptcy. It was discharged on 1/13. The home was being paid in our chapter 13 payments, but after the bankruptcy discharge we were no longer financially responsible for the home. Our mortgage company, Chase mortgage would not accept any payments after our discharge and only offered us a shot sale or a foreclosure. So we currently have the home on the market for a short sale. I contacted the housing authority about FHA guidelines for the bankruptcy. They said that it does not matter the outcome of the home because it was discharged and that their guidelines say we can get a mortgage 1 year after discharge. However, I am being told by mortgage brokers so many different things. They say no, that we have to wait 2 years after the sale on a short sale with the home. Others have said that we will get approved sooner if we let it foreclose and not short sale it. I need some definitive answers! This is he most frustrating thing I have ever been through. I need help.

OK. I’ve had a lot of Q&A on this post over the last 2 years but this one is fascinating.

Your waiting period on the Chapter 13 is 1 year if you’re still in the 13 plan. So that’s true. My first question would be since usually 13 plans are 5 years, how are you discharged already? I would assume you’d still be in the plan. Not that it would matter because you can still buy a home while in chapter 13 as long as you get permission from the trustee (I think that’s still Jasmine Keller).

The only reason it would matter if you’re in the 13 still or not is that if your mortgage is included in the chapter 13 bankruptcy plan, a portion of the payment would go to Chase and that would be treated as current. If you’re out of the plan and they wouldn’t accept the payments and this has gone on for more than 30 days, an underwriter would treat that as a 30 day late. If it’s been two months, it would be a 60 day late; and so on. Having this late payment prior to a short sale would trigger the 3 years waiting period for buying with FHA or VA financing and a two year waiting period for Fannie Mae financing (but you’d need 20% down or 10% down if you can document extenuating circumstances AND get an automated underwriting approval).

I think the distinction here is the difference between the Note you sign at a mortgage closing (which is the promise to repay) and the Mortgage (the instrument which secures the debt against the property). In a bankruptcy, you’re expunging the Note but usually, the mortgage remains. This is why they can still foreclose.

It sounds like you’re somehow discharged so this may not be good news but if you wanted definitive answers, . . . you got em.

Rachel from Saint Michael, MN, United States

March 30, 2013

We are thinking about selling our house and moving to a suburb closer to the twin cities (MN). My husband and I are commuters with jobs out there and the hour drive is really draining us especially with a family with small children. We owe more on our home than what it’s really worth and looks like our only option would be to do a short sale since we don’t have enough money to pay the difference. We have not missed or been late on any of our payments now for over a year and also have good credit. Can we qualify for a short sale with chase and would we be able to get approved for another loan right away as we don’t want to have to wait or rent? What are our options here in MN?

The two options for buying right away that you might be eligible for would be VA (if you’re VA eligible as a veteran or foreign service worker) or FHA (as outlined in this article). The only hard stop preventing FHA from working would be if your current loan is insured by FHA. The reason for this is that they have a policy against approving short sales without at least a 30 day late payment. They’re one of the last to have this policy. Assuming that’s not the case, I like your chances. Especially if you’re buying in the central twin cities, eastern suburbs or southern suburbs because that’s would likely be considered “outside of a reasonable commuting distance” from Buffalo, MN. A lot of this calculation will rely on the location of your place of employment too.
You’re pretty close to me and in my home state so I’d be happy to help with this. I’ll set you up with a complimentary Scouting Report account. To set up search criteria that would work for you AND for FHA, I’d have to walk you through it over the phone.

Kelley from Eugene, OR, United States

March 7, 2013

Today we got our pre approval letter for a new home loan !! An hour later we got an email from our Mortgage company saying our short sale has been denied (after they counter offered and the buyer accepted) because of unacceptable hardship. According to them, it’s because we have never missed a house payment. My husband’s income dropped $60,000, we have sold everythin we can, borrowed from our retirement and now have a large credit card debt just to stay afloat. They say I can call with questions? We’ve done everything right and they would rather we just stop making payments and foreclose? I’m not sure how to respond to them. Any idea’s on how to get them to see our hardship?

There are only two loan types that I’m aware of that can require someone to be late on their mortgage in order to qualify for a short sale. FHA is one of them and privately owned AND privately serviced loans but if your loan were owned by Fannie Mae or Freddie Mac for instance, that wouldn’t be the case. Big shocker, . . I’ve written an article on this topic too: /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/. To see if Fannie or Freddie own your loan, you must first look up your address as it appears in the USPS system. Do that here: https://tools.usps.com/go/ZipLookupAction!input.action. Then lookup under Fannie: http://www.knowyouroptions.com/. Then lookup under Freddie: https://ww3.freddiemac.com/corporate/.

Kelley from Eugene, OR, United States

March 8, 2013

Yes, it is a Fannie Mae loan and they are who have denied our sale due to “unacceptable hardship” My loan servicer says that I must be in imminent danger of default and Fannie Mae has 3 acceptable reasons. Death, Divorce or 60 days in default. They told me today there is nothing I can do, no appeal process. They suggested I either get divorced, or stop making my loan payment and after 60 days, re apply for a short sale. I will not accept this, where do I go to fight?

Uh, that’s not precisely correct. According to Fannie Mae’s servicing guidelines (VII, 602.02.01: Mortgage Loans in Imminent Default (10/01/11)), the 3 reasons are death of a borrower or co-borrower, long-term or permanent illness or disability of a borrower or co-borrower or dependent family member, or divorce or legal separation of a borrower or co-borrower. Actually, the public can view their guidelines here: http://www.allregs.com/tpl/public/fnma_freesiteconv_tll.aspx.

Galina from Mundelein, IL, United States

February 23, 2013

Hi Charles, My friend got divorsed and because her husband didn’t want to make an effort of selling a house they had to do a short sale (affecting HE loan). It’s been 2 years now and she would really like to purchase her own house, but everybody keeps telling her that she can’t do it and nobody will give her a mortgage even so she is looking to put down 20% and also her credit score is above 700. She was never delinquent at any of her loans (not sure about that mortgage as she could afford to pay by herself). Would you be able to give us an advise of how to approach and where to go to get a mortgage? Should she call big banks and set up appointments with them or should she go through small banks? The broaker who she worked with told her that nobody can help her untill like 4 years after her short sale.. Please! Any information would be very appreciated. Thank you so much! Galina

rosie from Silver Spring, MD, United States

February 23, 2013

Every lender turned us down to buy a house because we had a short sale in Feb 2011 and one in June 2012, (trying to liquidate our house and an underwater rental.) We thought we had NO chance, but a small local bank that does in-house loans approved our house loan with our credit scores above 650. We’re just waiting for the appraisal on the house and will hopefull close in 3 weeks. We had to pay 10% down and get a little higher interest rate (4.25 on a 3 year ARM) but it beats the heck out of renting. Look for a local bank or credit union and ask about in -house loans!

That’s awesome Rosie!!! You should start looking into a VA refi on that loan as early as late this year. You have to have 12 consecutive months with no late payments before VA eligibility. That should get rid of that ARM for you.

Galina from Mundelein, IL, United States

February 24, 2013

Thank you! This is what I was actually thinking too – if big banks would not offer mortgage she will go to local banks.. I just didn’t have a clue that with so many people loosing houses it’s so hard to get a mortgage even after 2 years and great credit score… Thank you!

Molly from MN from Lakeville, MN, United States

February 22, 2013

We did a short sale on our townhouse a little over a year ago. We were never late on any of our payments and we were told we would be able to get an FHA loan immediately after the short sale appeared on our credit report. When we appllied for the short sale this past fall, we were declined, even though our credit score was high enough. We were declined based on the fact that we were trying to purchase a superior property (although not a short sale or foreclosure). I am wondering who decides if you are trying to take advantage of the market? We short sold our townhouse, because it was much too small for our family of 5 and we needed a larger house. A short sale was the only way we could financially get out.
Do you think it would be possibly for us to get an FHA loan? My husband is leary of trying too many times, in fear of hurting our credit score with too many hard credit pulls.

Firstly, you don’t need to wait until the short sale hits your credit report before you buy. You can do it right away. Whoever told you that was misinformed. It appears that you’d be eligible to buy after a short sale but you probably can’t buy what you want to buy. If you are going to buy inside of the 3 years using a FHA insured loan the property can’t be similar or superior to the property previously sold short. What this means is that (A) it is not a higher form of collateral and/or (B) it’s not structurally superior the property previously sold short on balance.

What do I mean by higher form of collateral? There is a hierarchy of housing in underwriting where one type is better than the other and so on. Here is that hierarchy from best to worst: single family house, townhome, condo, duplex, triples and finally four-plex. Taking a step from one of the higher forms to the lower forms works. Going the other way does not.

What do I mean by structurally superior? I use a spreadsheet that takes into account all aspects of the previous property sold short (e.g. square footage, bedrooms, bathrooms, year of construction, type of construction, etc.) and compare the old property to the new one side by side in it. If, on balance, the new property is a structural downgrade then I’ll do the loan. If it’s a close call or if it’s not a downgrade, I won’t do the loan. That’s not a personal choice on my part, that’s just how FHA wants them done.

The only way around this is if you are relocating over 100 miles away from your previous property. This figure of 100 miles is arbitrary and based on some geographical factors exceptions can be made down to 50 miles but only in rare instances. If however this relocation element applies, the “similar or superior” rule doesn’t apply.

Molly from MN from Lakeville, MN, United States

February 22, 2013

We completed a short sale a little over a year ago. We were never late on any mortgage payments in the 6 years we owned the house. The reason for our short sale was not financial, but because our 2 bedroom townhouse was not large enough for our family of 5. We accepted the short sale offers from both of our mortgage companies and paid the amount they asked for immediately.
We were told that after waiting long enough for the short sale to appear on our credit report, we’d be eligible for an FHA loan. About 4-5 months after the short sale, we applied for the FHA loan. Although our credit had taken a hit, it was still high enough to be approved. We were denied the FHA loan based on the fact that we were looking for a superior property (we never considered a short sale or foreclosure property, however). We were told we would have to wait 3 years for an FHA loan.
I am just wondering if this is always the case. How do they determine if you are trying to take advantage of the declining market? That’s not our intention, we just want a larger house and there was not another way out of our townhouse (we took an $80,000 loss when we sold).
Do you think it would be possible to get FHA approval? My husband is leary of trying too many banks, since he doesn’t want too many hard credit checks to bring down our score.

Firstly, you don’t need to wait until the short sale hits your credit report before you buy. You can do it right away. Whoever told you that was misinformed. It appears that you’d be eligible to buy after a short sale but you probably can’t buy what you want to buy. If you are going to buy inside of the 3 years using a FHA insured loan the property can’t be similar or superior to the property previously sold short. What this means is that (A) it is not a higher form of collateral and/or (B) it’s not structurally superior the property previously sold short on balance.

What do I mean by higher form of collateral? There is a hierarchy of housing in underwriting where one type is better than the other and so on. Here is that hierarchy from best to worst: single family house, townhome, condo, duplex, triples and finally four-plex. Taking a step from one of the higher forms to the lower forms works. Going the other way does not.

What do I mean by structurally superior? I use a spreadsheet that takes into account all aspects of the previous property sold short (e.g. square footage, bedrooms, bathrooms, year of construction, type of construction, etc.) and compare the old property to the new one side by side in it. If, on balance, the new property is a structural downgrade then I’ll do the loan. If it’s a close call or if it’s not a downgrade, I won’t do the loan. That’s not a personal choice on my part, that’s just how FHA wants them done.

The only way around this is if you are relocating over 100 miles away from your previous property. This figure of 100 miles is arbitrary and based on some geographical factors exceptions can be made down to 50 miles but only in rare instances. If however this relocation element applies, the “similar or superior” rule doesn’t apply.

Tina B from United States

February 21, 2013

Hi,

I closed the short sale of my property on Aug 3rd, 2011. I only missed my last payment because I was told that I had to be at least 30 days late in order to be able to complete the short sale, however on my credit report it was not reported as being late. They reported the short sale as “settled for less than the full amount.” My credit score was over 750 prior to the short sale and dropped to about 680–but has since gone back up to just over 700. I was also told that I could not buy another home until at the very minimum- 2 years, but I contacted my bank and they pre-approved me for a conventional loan with 20% down. Now I have an offer that was accepted on a property just yesterday but I’m so worried that something is going to happen down the road and they tell me that I cannot buy the house afterall. I’m only 5 months away from the 24 month waiting period. Do you think I am good to go since they pre-approved me? I even discussed the short sale and expressed that I wanted to make SURE I was approved. Thoughts?

Tina B from Westland, MI, United States

Yikes. Bad news then. Fannie Mae has a 2 year wait and 20% down is needed unless you can document extenuating circumstances and get an automated approval for 10% down. You should ask to see a copy of your Fannie Mae Automated Underwriting Findings showing an approve/eligible finding. If they can’t do that, I’d worry a great deal.

Tina B from Westland, MI, United States

February 23, 2013

You were right. After many conversations with my lender it looks like I have to wait until the 24 month mark after all. As I said before I was not late on any payments, but I closed my short sale on Aug 3rd- which some screwed me over as far as the HUD goes. I’m so bummed that my family and I have to wait 5 more months to buy a home.

Argh. I was hoping they had some kind of odd portfolio loan that I’d never heard of but oh well. . . Here’s an unsolicited tip for you going forward. While the waiting period is 24 months in your case, you’ll also need an automated approval using Fannie Mae’s Desktop Underwriting software. It’s artificial intelligence but in some ways it’s not super intelligent. On the 24th month, it doesn’t know if it’s been a full 24 months so usually it won’t approve the loan until there has been 25 months elapsed. So you might want to plan around 25 months. Secondly, MAKE DARN SURE that the loan that you sold short is reporting correctly to your credit bureau. By this I mean you should make sure that the mortgage doesn’t show “date reported” pas the month that you closed your sale. I run into this all the time and it’s a difficult problem to fix.

Tina B from Westland, MI, United States

February 24, 2013

I just pulled up my credit report and its showing DLA of 7/11 but last reported 10/11. Which one matters? Just my luck it’s the Last Reported date. If it is, how do I go about getting that changed? Do I dispute it with the credit bureaus or contact the actual lender my loan was through?

They both matter unfortunately. I usually do this for my clients but I’m not in MI so you’ll have to do these disputes yourself. Basically, you just want the last active and reported dates to match your short sale date. Here are the links you need:

[…] a short sale to take advantage of declining market conditions and purchase, at a reduced price, a similar or superior property within a reasonable commuting distance – This is the same as the FHA […]

Ray Brown from California City, CA, United States

February 1, 2013

We had a VA Loan for our home. We contacted Wells Fargo on multiple occasions to proceed with a short sale due me separating from the military. After 8 months of non-corporation with Wells Fargo our relator insisted to quite paying the mortgage payments because if you continue they will not entertain because they are receiving their monthly installment. We stopped. 9 months later we moved out and into a rental. 6 months later we completed a short sell on the home. We did NOT make payments on the home for 15 months. My question is; Is my VA Eligibility Revoked?

If you wanted to use a VA loan again vs. using FHA, you’d have to restore your edibility using form 26-1880. There may be a problem with this if there is any indebtedness to the federal government as a consequence of a claim on the VA fund from the short sale. Here’s the text from the VA manual:

“…although the veteran’s debt was waived by VA, the Government still suffered a loss on the loan. The law does not permit the used portion of the veteran’s eligibility to be restored until the loss has been repaid in full.”

The place to start here is by submitting form 26-1880 and starting the restoration process.

Marilyn from Baltimore, MD, United States

February 1, 2013

Hi Charles,I have been following all the articles in your webpage.We just received a letter of approval for our HAFA short sale from Chase with no missed payments.I am anxious as to how they will report it to the 3 credit bureaus because the short sale specialist who handles our short sale said since it is HAFA,they are required to report it as code 13 or paid/account closed which she said should not affect our credit.However,I read in some blogs there was this lady who completed a short sale (HAFA)from Bank of America with no missed payments and her scores droped by over a hundred.they apparently reported it as zero balance/paid but they put a comment – settlement made for a conventional loan.We were just approved for a new loan by a lender under FHA and I am wondering if they will take back the approval if my credit scores will go down because of the short sale.The lender fully knows that we are undergoing a short sale and took all our fico credit before this short sale closes.Do you think any posibility of my credit score going down will affect the lenders approval of my new loan?Can they take back the approval knowing that after a short sale the credit scores might get affected?thank you very much and have a wonderful day.

Yes there is a possibility as they are likely to show your mortgage (after being paid by the closing of your short sale) in the collections/write off’s section of your report). I can’t say for your situation but I’ve seen people who were current on their loan after a short sale lose between 43 and 89 points. It’s important to pay attention to this because if you drop below 640 with me (as low as 620 with others), you’d fall out of eligibility for FHA financing. Sometimes a good way of avoiding this is to close on your new purchase the same days as closing your short sale as the credit score drop would not have taken place by that time. In other cases, people will take month to month leases and buy as soon as their credit ticks back over 640.

Kim from Sarasota, FL, United States

January 30, 2013

Chas – thx for responding. The reason I ask about credit scores is my ultimate goal is to preserve my credit as much as possible as I have spent years rebuilding but I am in need of funds to relocate. I really dont want to miss payments on short sale if I dont have to but I am not looking to repurchase for a couple of years anyway.

If the hit to my credit will be the same with missed payments vs no missed payments and the short sale would get processed faster then it would be help me to miss payments and save funds to relocate.

I know you cant advice me on whether to miss payments or not but my I was hoping to get info on if the credit hit is the same.

By the way I have A LOT of active credit! Too much! I pay everything on time but my DTI is terrible and that should improve when I relocate.

When people ask me if they should keep making their payments, I tell them they should if they can. Make sure to read this: /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/

It looks like the only way to preserve credit is to try to get the lender to report the short sale as “paid” which I have read can be done but is rare. To do that you can not have any missed payments and must have a compelling hardship letter so in that regard I can see not missing payments as well as if you wish to repurchase.

I believe I have compelling hardship/extenuating circumstances but my goal is more to preserve my credit than repurchase right now.

Do you have any info on GMAC and their track record of allowing a short sale to reflect “paid” on a credit report or any info to help my case?

I have only seen them report it in the collections/write off section of reports reading “creditor settled for less than the amount due.” This is pretty standard. Good article you found there. You may also want to read this one: /buying-after-a-short-sale-is-an-excellent-mortgage-credit-risk/.

Kim from Sarasota, FL, United States

“What percentage of homeowners in your area are upside down on their home, suffering a hardship and current on their mortgage and installment debt?”

“Educated homeowners are on board . . . Realtors are on board . . . it’s time that lenders got in the game!”

AMEN! Great article. Thx for sharing.

I am asking any of your bloggers that have successfully had a short sale marked as “PAID” on their credit report for advice here. I have seen some posts from a few that stated their lender did that for them. Can anyone give me any advice/help on how they negotiated this?

I know it is rare but if at all possible Im going to try my hardest to negotiate that! I am going to continue to pay on time and I have a def hardship and need to relocate to help my father who is ill.

Chas – as far as income is concerned on a new loan, if I relocate and stay in the same job field do I need to worry about length of time in my job as far as qualifying? Just curious.

Thanks for your kind words. Regarding length of employment on your new job. If it’s full time, you’ll likely need to provide 30 days of paystubs prior to closing and be on the job at point of application. If your job is part time (i.e. less than 40 hours a week), let me know because those guidelines are long and messy.

Kim from Sarasota, FL, United States

February 1, 2013

Chas – you had said that you cant say with any certainty how my credit will be affected with a short sale. I pay everything on time and have no lates but I have a very high debt to income. If I am approved for a short sale and relocate and then work on paying my debt down will my credit be less affected or does it go by what you did BEFORE the short sale?

Hmmmm. There’s only one way to get that detailed and surgical on credit management. It doesn’t some free but in my opinion, it’s totally worth it. I took the annual plan of MyFico’s ScoreWatch: http://www.myfico.com/Products/Products.aspx. It ain’t cheap but it’s thorough.

Victoria from Bel Air, MD, United States

January 29, 2013

Hi, my husband’s job transferred last year to another state so we did a short sale. We were required to be delinquent on our mortgage payments to get the short sale done, so we missed one payment. We are now renting for two years and when we buy again will be doing a VA. We closed on June 1st 2012. When can we start the process of getting pre-approved for another mortgage? Do we have to wait exactly two years to the day to even put in an application or do we have a chance of getting approval 2-3 months ahead as our lease will be up at the end of May 2014. We live in Maryland. I would appreciate any information that you are able to give.

I’m not licensed in MD (getting licensed in VA but not MD) but I can answer your question. If you’re going to buy after a short sale using a VA mortgage, I’ve written a comprehensive article separately on that. Here’s that link: /buying-a-home-after-a-short-sale-using-a-va-mortgage/. I just re-read the article to make sure that it covers all your questions and it will but be sure to visit the link on extenuating circumstances and let me know if I’ve omitted part of your question.

Victoria from Bel Air, MD, United States

January 30, 2013

Hello, thanks for the info. The only thing for us is we were required to be delinquent or the short sale would not have been approved, that is why we had to miss a payment and it was only one that we missed. I realise that 2 years is the waiting period to get a VA, but is it actually to the day, June 1st 2012 was the date we closed. We would like to start the pre-approval process before our lease is up at the end of May 2014. Do we have a chance of getting pre-approved but not being able to close until June 1st 2014, or do we have to wait until June 1st 2014 to start the pre-approval process?

Technically, you need to officially apply on or after June 2nd 2014 as they go by the date of the application in this case. However, any decent loan officer should be able to work with you on doing such things as a VA Loan Analysis and figuring out what you should qualify for prior to that. It’s just a decent human thing to do.

Victoria from Bel Air, MD, United States

Michael from Marysville, WA, United States

January 26, 2013

Hey Charles- I hope you are having a great weekend!
I wanted to run this by you:
Do you have any opinions on buying a seller carry home?
Sounds like they do 10 or 20% down and about 6% interest for anywhere from 2 – 5 years.
On top of all the other unknowns I have, I worry what would happen if that seller who is carrying my loan filed bankruptcy or got divorced or something like that.
I would love your opinion/thoughts.

I can’t give legal advice so I’d have to tell you to ask an attorney about that issue concerning the seller filing bankruptcy or getting divorced. I used to arrange mortgage financing along side seller carry backs all the time. They can be a great way of getting a good transaction done. Here are a couple words of caution:

1.) Make sure you’re paying a fair price for the home so that when you eventually have to refinance out of the seller carry back, you’re not upside down.
2.) Don’t take a short balloon term!!! You have to give yourself adequate time to be bankable come time for that balloon. I always recommend 5 years.
3.) Make sure that, if you had any major credit events, your waiting period won’t put you in a disadvantaged position come time to refinance out of the seller carry back. Here are those waiting periods: //waiting-periods/

This is an interesting question. The only way this would come into play is if, under the SCRA, you weren’t obligated to make the payments that were deemed to be late. If I could document something like this, it would likely be a game changer for you and might allow you to buy quickly. Don’t get your hopes up yet but yes, we should look into this. Here’s more you’ll want to know about the SCRA:

The Servicemembers Civil Relief Act (SCRA) was signed into law on December 19, 2003. The Act amended and replaced the Soldiers’ and Sailors’ Civil Relief Act of 1940. In general, the act seeks to strengthen the national defense by providing for temporary suspension of legal proceedings and financial transactions that may adversely affect the rights of servicemembers during their military service. These types of concerns shouldn’t be on the minds of our fighting forces.

The SCRA covers all Active Duty servicemembers, Reservists and the members of the National Guard while on active duty. The protection begins on the date of entering active duty and generally terminates within 30 to 90 days after the date of discharge from active duty.

Among other things, the act contains special rules regarding debts secured by a mortgage, trust deed, or similar security interest in real or personal property owned by a servicemember. Generally, the act prohibits the sale, foreclosure, or seizure of property, based on a breach of such a secured obligation, during the period of military service or within 90 days thereafter. The prohibition applies only to obligations that originated prior to the servicemembers military service, and for which the servicemember is still obligated.

The SCRA protects servicemembers against foreclosures of mortgages, as long as the following facts are established:

1. The relief is sought on an obligation secured by a mortgage, trust deed; or other security in the nature of a mortgage on either real or personal property;
2. The obligation originated prior to entry on active duty;
3. The property was owned by the servicemember or family member prior to entry on active duty;
4. The property is still owned by the servicemember or family member at the time relief is sought.
5. The ability to meet the financial obligation is materially affected by the servicemember’s active duty obligation.

A few examples of other obligations the service member is protected against:

Rosie from Bethesda, MD, United States

January 18, 2013

Thanks for the valuable info you have provided on your website! In Nov 2010 we were relocated from Oregon to Virginia with military orders. We ended up closing on our Oregon home in June of 2012. We were missing a few payments (to force the short sale through) but our lender removed it from the record and our credit shows no missing payments. So, it’s been 8 months since our short sale, but our move was because of the military…is there any possibilities of buying a home because of extenuating circumstances? We have money for 5% down, our credit scores are 650+ and we’ve got a 2 yr perfect rental history (plus 1.5 yrs timely payments on a new car) and want to buy a house well under what we can afford. (approx $315 k where we could qualify income-wise for $450k) Any hope for us, or are we stuck renting for 2+ yrs?
Thanks for any advice you can offer!

Well, when I’m doing these loans, one of the things that I do is what’s called a tradeline update. This is where I request that my credit vendor verify payment history directly with a creditor. Usually, they just get this info directly from the 3 credit repositories but when we’re doing these loans, we have to get that history directly from the creditor to ensure that our clients did pay as agreed for the 12 months preceding the short sale. If that comes back clean, then I’m in the clear. If it doesn’t. I’m dead in the water and subject to a 3 year waiting period and a 2 year waiting period for Fannie Mae (because in your case you’d qualify for extenuating circumstances with Fannie Mae but extenuating circumstances allows a 2 year waiting period vs. a longer waiting period, nothing less than 2 years though).

Here’s how buying after a short sale using VA financing works: /buying-a-home-after-a-short-sale-using-a-va-mortgage/.

Rosie from Brookeville, MD, United States

January 19, 2013

Thank you for the reply! When we closed on our short sale our lender told us they would not be reporting that there were late payments…when we checked our credit report it shows no late payments on the mortgage and my husbands score is back up to about 700…so I guess we need to just sit down with someone and have them go through our financials. to see if it actually shows up or not. I would hope a 2 yr active duty recall would qualify for extenuating circumstances. It’s frustrating because we make well over what we would qualify for on the home we want to purchase (ie, %600k and the home we want is $319)…it’s our dream home and wow, it’d be a bummer to lose the opportunity.
You’re a pretty amazing guy to be answering all these questions from strangers who need advice. Thanks so much. If you know of any good brokers in Virginia, please let me know!

OK. You gotta call me. I’m all roped into this problem now and I want to fix it. 612-234-7283. I think it does qualify for extenuating circumstances but extenuating circumstances on VA financing only comes into play when you’re trying to use the 2 year waiting period vs. the 3 year waiting period if you’re buying a home after a short sale using a VA mortgage. Click that link and read that article.

R from Bethesda, MD, United States

February 4, 2013

So, things were going slowly with our banks as they are reviewing the SCRA and our orders for a possible exception to the FHA short sale time frame. Amazingly we had an ambitious realtor find a solution for us! We fell in love with a historic farmhouse in Virginia and called the realtor about it, looking for a lease to purchase. The owners weren’t interested, however, he got us in touch with the Vice President of a locally run bank that does in-house loans. They did not care about our short sales because we had a “good excuse”…military orders. They didn’t even request copies of the orders. They pulled our credit and it’s over 650, so they prequalified us for a loan. I am SO happy!! I thought to myself…surely in America we don’t have to be tied to 3 government options or loan sharks to buy a house, and a small town banker proves that right. We just made an offer on my dream house. So fyi, it is possible! We’ll have to get a final approval after property assessment, but the banks loan committee has already reviewed our income & credit, so we expect it to go through. So, don’t give up hope….just go small. go rural!
Thanks for your help!

Gen and Michael from Marysville, WA, United States

February 5, 2013

What do you know about 2nd change loans? A bank is telling us we qualify due to the only ding on our credit being a short sale with 2 late payments in July/August of this year. Does this soudn right to you? Thanks.

Gen and Michael from Marysville, WA, United States

February 5, 2013

Sorry. Typo. SECOND CHANCE. A home loan. A bank is telling us we will qualify for a 2nd chance loan right now since the only hit to our credit was the short sale (with missed payments) the ss
sale was just this summer. We are still waiting ofr the final approval but should get it today. I had never heard of this SECOND CHANCE loan. Have you? (basically its 20% down. 6% interest for 5 years then its adjustable and you can get a new loan (no penalty) in 2 years.
Soudns pretty good! But wanted to ask you your thoughts…. Thanks!

“What do you know about 2nd change loans? A bank is telling us we qualify due to the only ding on our credit being a short sale with 2 late payments in July/August of this year. Does this soudn right to you? Thanks.”

John from Roseville, CA, United States

January 15, 2013

I’ve heard different opinions on appealing missed payments. Our lender was willing to approve our short sale (while staying current on payments for the first 8 months of the process) however the PMI company stated we had to be at least 60 days. I’ve been told we could possibly appeal this. Have you heard anything like this?

Some PMI companies require that you be late on your mortgage to qualify and some don’t (as can be seen by clicking on the PMI links here – /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/). The first thing you need to know is who the PMI company is. Do you you know that? If so, who is it?

Marta from Chicago, IL, United States

January 14, 2013

Okay I find this all very encouraging. We bought in Woodbury in 2008 before the market really got bad and we’re moving because I got relocated to Chicago. We’re current on our payments and it’s not a financial thing we just can’t sell our house for what we owe (and don’t have the money to make up the difference) and thus have to do a short sale. We’re putting it on the market this week and our relator in Chicago told me that I can’t buy after a short sale for two years! With two kids and a dog I really want to be able to move us to a home and not have to rent for two years and then move *again* when we can buy.

Also, you don’t happen to know the rules about the First Time Homebuyer Tax credit do you? Everything I read in the IRS paperwork seems to imply that we don’t have to pay back the credit due to an exception. But the exception seems way to easy to meet that I’m skeptical.

Everything you need to know about the First Time Homebuyer Tax should be here http://www.irs.gov/uac/First-Time-Homebuyer-Credit-1 (unless clarifying it necessitates calling the IRS). It actually looks like you have a good scenario for buying after a short using FHA financing. I’m not licensed there but I know someone who is who might be able to help.

Tammy from Marshall, MN, United States

January 30, 2013

My husband and I had to do a short sale. We both lost our jobs and could not find one locally. My husband found a job in MN but had to commute 2.5 hrs daily. I also found a job and commuted with him daily. We have been renting for the past 2 yrs as we were told we had to wait anywhere from 2-5 yrs before we could get a loan for a home. We are frustrated as we would love to own a home. We tried to go to the bank and see when we could be able to get a loan and were told we need to wait 3 yrs from the date of the short sale. Is there any hope to getting a loan sooner or do we still need to wait for the 3 yr mark?

Hi Tammy. You’re right in my back yard here in MN (brrrr). The only way to buy after a short sale in less than 3 years would be to use VA eligibility and document extenuating circumstances or do a Fannie Mae loan with 20% down after 2 years (or 10% if you can document extenuating circumstances: /what-are-extenuating-circumstances/)

Leisa from Lutz, FL, United States

January 11, 2013

I am divorced with a 15 yr and 18 yr old living with me and have had a short sale contract on my home for 13 months only to just now be told that this won’t be a “total forgiveness” short sale. My equity line credit union is insisting on 30% = $20100 at closing to agree not to pursue for the difference. OR- Me and my ex can sign that we are responsible for the $66000 deficiency with no terms being revealed prior to signing as to if they will decrease the amount, what the payments will be, and it will be a joint payment with my EX. My ex will not communicate with me but I offered the credit union $2000 that my family will let me borrow and they say absolutely no. They will only accept 20k. I told them I will not sign to be on a deficiency payment with my ex for who knows how long, and we apparently can only offer less at closing, so I suppose foreclosure is our only option. Meanwhile I am engaged and hope to marry and move to Seattle, WA this summer. I don’t know how marrying will affect my foreclosure or how my foreclosure will affect my future husband. If I understand right, if I am pursued for the deficiency after marriage, they can’t go after anything under my new spouse’s name alone. They can only go after things in my name. And, of course, my credit is greatly affected and I’m used to having a 780 score. All other debts are paid in full and only the two home mortgages remain (and a car payment-which is up to date). The title agency warned the credit union that they would not win against me in a homestead with head of household status and a minor. But now, I want to marry and get my daughter to WA for her last two years of school and I don’t know if that makes me more vulnerable and not as “needy”. Sorry so long. Any advice!?

WOW! Not a ton of advice that would be helpful necessarily but I have seen people come up short cash to close in this way who’ve had as good of credit as you do. They were able to find local banks or credit unions that were able to do an unsecured installment loan to pay off the difference. You might want to try that and in the meantime, threaten your second mortgage company that you’re going to file chapter 7.

Leisa from Lutz, FL, United States

January 11, 2013

My spouse started the divorce 2 years ago and then starting in Jan 2012, I couldn’t pay the entire amount by myself, so I quit paying the mortgage and used the portion that was available to pay off the shared debt and lawyer fees from the divorce. My score tanked and my auto insurance significantly increased due to score. They laughed when I said I might have to foreclose or file bankruptcy and said it didn’t matter. They’d go after me and my ex any way. I can borrow 10k but my ex refuses to pitch in half of 20k and I’m waiting to see if he’ll offer 2k so we can counter offer 4k together.

I’d prefer to finish this chapter before remarrying but the timing with my daughter’s school is an issue. If getting married during the process doesn’t really affect the process or my future husband, I’d rather just marry in the summer. Can you think of any negatives?

Man this one is really over my head. These are better questions for both a bankruptcy attorney (because I’m curious how the 2nd mortgage could come after you post bankruptcy) and a family law layer because I don’t understand the implications of your previous marriage and this credit event as they relate to your new relationship. This one is just out of my field of expertise.

Thanks for that. I went through a short sale myself so I have a soft spot for this stuff. Unfortunately, I don’t have any good contacts there. Here’s what you should ask, “I am looking to buy 2 years after a short sale with 20% down using a Fannie Mae backed loan. Can I apply with you to get a loan quote and make sure my application get’s an Approve/Eligible finding through Fannie Mae’s automated underwriting engine?” This question will scare the crap out of them because no random potential client knows this much but it will tell them exactly what you need them to do. Plus, the idea of you doing this is very funny to me. Good luck!!!

Michael from Marysville, WA, United States

January 4, 2013

We could put 20% down. And I have an update- checked credit score last night, and its showing upper 600’s at one and 700’s at the other two. Havent paid for actual fico yet. Last I checked (Late sept/oct) it was 611. I dont know if I should be really happy, or see if its an error!

Michael from Marysville, WA, United States

January 4, 2013

Great info. Thanks. Can you advise: Owned home for 24 years. Stable jobs, excellent credit. House went upside-down and lost about 50% of its value. We did a short sale, and HAD to be late on payments to qualify for that.(2 months to qualify, but during the whole process 6 months passed. They did forgive all the balance.) HOWEVER, we purchased another home out of state just before the short sale as we anticipated the credit hit.
Low-and-behold, we want to sell/move. (Area is not good for families. We are a family).
We put $50k down and could probably get out of this with most of that back. But… then what? Our credit fell from excellent to below 620 (611) . Any ideas on us getting a loan? Still have the same stable job. Staying here would be very detrimental to our family. Is there a waiting period after short sale no matter what in our case, or if we get our credit back over 620 sooner does that help? Or, are we destined to become renters? Greatly appreciate any advice.

I don’t know of anyone doing these with a 620 score. They all need 640 for FHA and 660 for conventional. Conventional requires a waiting period of 4 years unless you can put 20 percent down. Then 2 years. If you can document extenuating circumstances surrounding your short sale, you might be able to do 90% financing after 2 years. Would any of these scenarios work?

Lynn from Dallas, TX, United States

January 3, 2013

We just short sale a house in Texas did not have any late payments until my husband lost his job and miss 2 payments ,but it does show on the credit report the late payments and it show on the credit report the house paid in full . Can we apply to get pre approve. Do you any one could help us with being pre approved we are in Dallas ,Tx

Unfortunately, in the process of underwriting, they will verify the 12 month payment history on the mortgage/mortgages int he 12 months preceding the short sale regardless of what the credit report says. This didn’t use to be a common practice but now it is due to how often lenders are reporting short sales incorrectly to the credit bureaus. Consequently, this situation wouldn’t work and your situation would be subject to the normal waiting periods associated with the various loan types.

Lisa B from Austin, TX, United States

December 21, 2012

Hi Charles, we had a short sale in May 2010 and were never late up until the short sale. Wells Fargo would not do a modification/reduction and stated we would have to be late to do the short sale. So we were about 60 days. Now we are looking to purchase a lot and build (2 years later). Our credit scores are 700+ with little debt and excellent income, nearly $200,000 and steady. What are our options and we only want to put %10 down. thanks.

Great question. Because of the late payments, you’d be on a 3 day waiting period for FHA or VA but not for Fannie Mae. Fannie Mae will give you a two year waiting period if you have 20% down and restored credit (which you do). If you want to do 10% down there’s only one way to do that. It’s also through Fannie Mae but you’d need to document, and document well, what’s called extenuating circumstances that surrounded your need to do a short sale. Everything you need to know about extenuating circumstances can be found here: /what-are-extenuating-circumstances/. The key to both of these loans getting approved is getting a Fannie Mae automated approval using their desktop underwriting software which is a type of artificial intelligence that assists in making loan decisions. The only way to get one of these preliminary underwriting approvals is to apply with a lender and have them run it.

Joe from Portland, OR, United States

December 17, 2012

Hi Charles, first let me thank you for the time and personalized responses you have been providing here. This thread is a great resource to those who need this kind of information.

I am being relocated from MSP to Washington (state) and want to by a home 1 year after a short sale. I was current on my payments with Chase (the lender on the short sale) but for some reason Transunion is reporting I was late on two months (Experian and Equifax don’t show this). I contacted Chase and their records show show I was on time and they faxed me a payment history showing that. The mortgage I’m looking for is $350k, I’m putting $50k down from a personal account, and I have the offer letter from my employer of 6 years showing a 10% pay increase with the new job (taking me to $170K base salary). I have no other FHA loans and a credit score of 750.

I am working on getting Transunion to fix the error but in the mean time, I can’t find a lender that will pre-qualify me for a FHA loan even though I believe that FHA guidelines indicate that I should be eligible.

Do you have any advice or recommendations of potential lenders in Washington you could refer me to? Thanks!

Yes and this should be an easy one. Find a lender, give them a very detailed loan application prepare the following documentation: http://www.iloanhomemortgage.com/required-paperwork/. It will make your life and theirs easier. Ask them to help you fix the Trans Union situation by doing a Rapid Rescore. They will need something in writing from Chase on their stationary (not an email) supporting the fact that you were not late. With this, they can get your credit report fixed, run your application through Fannie Mae’s automated underwriting system and get a preliminary underwriting approval. Then you’ll be off to the races.

Joe from Minneapolis, MN, United States

Julie from Madison, MS, United States

December 13, 2012

Charles – I had a short sale in Vegas last November. In the divorce paperwork I was to assume the loan. Unfortunately with the market crash, that was impossible. I did attempt to obtain a loan modification and failed miserably after three years of trying. We received notification from Wells Fargo that either they would foreclose or I could short sale. We elected the short sale option. I now reside in Mississippi. What is the waiting period to obtain a conventional loan with 20% down? I have heard that it is three years. Is that correct?

Here’s a good outline of the current waiting periods /waiting-periods/. The particular part you’re interested in is where it says, “After 24 months… a borrower could qualify with at least 20% down and after 48 months the maximum LTV is 90%. Their “extenuating circumstances” rule may allow someone to only have to put 10% down in as little as 2 yrs.” This refers to Fannie Mae backed conventional loans. For more on “extenuating circumstances,” see this: /what-are-extenuating-circumstances/.

Matt from Idaho Falls, ID, United States

December 12, 2012

Question! We are relocating for a new job due to possible lay-offs. My mortgage is small, FHA, be we bought before the market dropped and now we are upside down in the cost of the home. We were able to get pre-approved for a second home loan since we don’t pay much on our first one. We were told to get this second house, then short sale the first one in order to get out of it. Does this sound right? We will still be able to afford both mortgages, but it will be tight on the family paying both mortgages. It is doable but I am beginning to have second thoughts. Any advice on what we should do?

Nicole from United States

December 5, 2012

Got a question. I have a first and second lien. First is current and I am attempting to settle with second due to loss of income. Well i was just offered a promotion but it requires a move to another state. I would like to short sale and purchase in new state but I am curious if the late payment on the second even though i am current on first will kickoff the waiting game. Will it? Can I bring second current and avoid the 2 year if it does count?

If the second mortgage was settled, it would still account as “settling for less than the amount due” which is in effect selling short (because the sum of the proceeds from your sale would have been less than the total of the mortgages owed against it) so the waiting periods would still apply. However, if your payoff to the 2nd mortgage was formally treated as full and final payment with no chance for a deficiency judgment and you had no late payments on the first or second mortgage in the 12 months preceding the closing of the sale, you should still be eligible under FHA or VA (if you’re VA eligible).

Kim from Sarasota, FL, United States

December 3, 2012

Chas – I am needing to relocate and I am interested in doing a short sale without being late. I have a Freddie Mac loan. I suffered a bankruptcy and foreclosure 13 years ago from a divorce and have spent years rebuilding. My realtor thinks missing payments is the quickest wasy to get short settled but I am not worried about the time frame as much as the damage to my credit. There is a lot of mis-information out there as to credit damage. I would like to not miss payments and possibly build or buy a home in a year or two. Is this a viable option for me? My mortgage payments increase yearly as it is adjustable and I am working side jobs just to pay my taxes and insurance as I did not escrow. The repairs are mounting and I am living paycheck to paycheck. I have no lates on my credit at all. Lots of debt but I pay it all and on time. I am relocating to help my father who is ill, to be with my family, to get back on my feet and to be with my son who is in college. I have no assets, no retirement, no savings acct. Just debt. I would like to continue making payments on my mortgage with GMAC until the short sale goes through. Is this a viable option for me?

The most important information here is that you have a Freddie Mac loan. As far back as 2008 (and maybe before for all I know), Freddie Mac provided loan workout solutions for both people who were late on their mortgage OR those that were in Imminent Danger of Default on their mortgage. Here’s what you need to know on that: /short-sales-do-not-require-a-delinquent-mortgage-imminent-danger-of-default/. Later on, much of the rest of the industry came to adopt Freddie Mac’s principles on this. Here’s what you need to know on that: /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/.

I can’t empirically say that this is an option for you without having the full facts however, it sure as heck sounds like it is.

Further, if you do stay current on your mortgage and other installment debt in the 12 months preceding the closing of your short sale and you relocate, . . you’ll have a great change of getting a FHA loan to buy your next home when you land on your feet.

Kim from Sarasota, FL, United States

January 26, 2013

Chas – I have several questions:
1) I rec’d info from a company offering a HARP refi and debt consolidation. Have you heard of this?
2) If I were approved for HARP re-fi and decide to relocate down the road and I am still underwater can I still short sale?
3) What is the difference in hit to credit score if you miss payments on short sale as opposed to not missing any payments? Is there a difference or is it the same hit and if not what is the difference in points?
Thank you!

To your question number one. No I haven’t heard of such a thing because there’s no such thing. The HARP program only allows for a maximum of 250 dollars in cash back and doesn’t allow for consolidation of mortgages let along consolidation of debt. Whoever sent you that solicitation doesn’t know what their talking about.

To your question number two. I couldn’t say for sure. I do know people who have done short sales where the underlying mortgage was a HARP loan if that helps clarify things. It would largely depend on the credibility of your short sale hardship letter and supporting documentation I would imagine but this is all pretty hypothetical.

To your question number three. While there’s no possible way for me to know this with any high degree of specificity, there are some things I could suggest. If you have a lot of active credit (i.e. a couple of student loans, a couple of car loans a mortgage and 3 credit cards), you won’t be affected nearly as much as you would if you had little active credit (i.e. a mortgage and a small credit card) presuming that you stay current on your other obligations. One thing you can do is use the MyFico credit score estimator and see what the different scenarios would look like: http://www.myfico.com/ficocreditscoreestimator/. It’s pretty accurate and I’m a big fan of MyFico.com. Now, if you’re asking me this because you think you need to be late in order to qualify for a short sale, be careful. There’s a lot of misinformation on that out there. I’m sure you’ll be shocked but I’ve written an article on that topic too. Be sure to read through it if this is why you’re asking me this question: /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/.

Jeff S from Irvington, NY, United States

November 24, 2012

My wife and I completed a short sale back in January 2010, due to the fact we were trying to sell for almost 3 years because the taxes kept increasing well past what we could afford. We both have credit scores of 710. On our credit report it states (Legally paid in full for less than the full balance). Due to issues with the bank we had two 30 day past due on our reports (originally it stated 4 because the bank did not close the account until 4 months after they were paid, but they agreed to remove the last two). We have never been late on any of other accounts and both have excellent income.

Much less than that. Unless I am misunderstanding your timeline, you’ve been fine ever since you completed your short sale in Jan of 2010. Your 3 year waiting period for FHA (because there were some late payments) will be over with after Jan of 2013. This means that you should be eligible for FHA (or VA for that matter) and you could purchase with as little as 3.5% down with FHA (and zero down with VA).

Jeff S from Irvington, NY, United States

November 24, 2012

Oh ok. So your saying I should be fine if was waiting for the 3 year FHA waiting period? I had read that if I waited two years I could also go with a conventional type of loan, but would most likely have to put 20% down. I guess it doesn’t really matter on how many late payments there were as the guidelines still stand the same for everyone.

You’re fine on the 3 year waiting period, yes. Sure, you could do it after 2 years with 20 percent. If you have that much to put down, you should be OK right away. I guess I assumed that you didn’t have 20% down. Here’s a comprehensive list of waiting periods: /waiting-periods/. In that article, you’ll see a mention of “extenuating circumstances” and that also deserves an explanation: /what-are-extenuating-circumstances/.

Jeff S from Irvington, NY, United States

Brooke from Brentwood, TN, United States

November 13, 2012

Charles,
Please let me know your thoughts on our situation. I would appreciate an insider’s view. My husband and I (about 3 years ago) applied for a loan modification. At the time, he went through a job loss. A realtor suggested a loan modification. So we applied and like everyone else, was given the run around, told they never received documents we sent, sent the same documents multiple times, etc. Finally after a year into the waiting game, they said we had to open an impound account “as a condition of modification.” We were reluctant, but did so since this was a condition of modification. A rep from that BAnk told us that was a good sign because it meant it was going through. So they open the impound account and our monthly payment went up by $600 a month to fund the account of course. They continued to give us the run around month after month after month. We called weekly as advised but never with any answer. Always that it was “under review.” So two months ago, we get a “notice of default” from a bank we’ve never heard of. It seems the first bank sold off our loan and the new bank put us in pre-foreclosure. We asked what the default was and the bank said it was for 2 years of taxes and insurance that we owed our BAnk. Although we were paying an additional $600 a month for taxes and insurance, our BAnk was obviously not crediting our impound account. They never said a word–not a phone call, not a notice. We called them weekly and they never said “hey, your impound account is empty.” They just quietly paid our taxes and insurance. What bank does that? If there is no money in the impound account, they just keep paying your taxes and insurance for years and years??? We were always current with the county and with our insurance company, so we knew the bank was paying and had no idea anything was wrong. Our BAnk sure never said anything. Two years of taxes and insurance plus all the interest compounded added up to a HUGE “default” amount. We called our BAnk and they cannot/will not answer any questions. They only say “that file is closed.” We still don’t know what they did with the $600 more per month that was to go to the impound account. We are now selling via short sale and there is currently a bidding war on the house (would be a break-even and not a short sale were it not for this “default”). We are not trying to stay in our house, but I can’t stomach this whole situation on principle alone. I feel like it was intentional and not an oversight–like they were instigating a default. I’d love your thoughts on this, and if it’s something you are not at liberty to comment on, I would love any referral you could give me as to someone who I could discuss this with. Thank you.

Kristina from Covelo, CA, United States

November 6, 2012

Hi,

Here’s our situation:
My husband and I are currently in the process of short selling our home. We have an FHA loan and are about $50k underwater. We have a buyer and Bank of America (servicer) has approved us through Phase 1- SS Qualification (we had to be 31 days late on payment), and now just passed through Phase 2- Buyer Offer Approval. We are now moving into Phase 3- Closing and hope to be done with this in the next 30 days (We have had the offer since April!).

Here are my questions:

I understand our limitations to buy again since we are now defaulted…(thank you for your guidance on this), but wondering:

1. My husband had an accident and thumb amputation along with a whole winter being laid off due to weather (construction), as well as us needing to move closer to work (he was commuting 3 hrs each way for some jobs). Do these circumstances qualify as extenuating circumstances if all of these events led up to our need to short sale?

2. We are now going into closing and will most likely be 4 months late on mortgage. That alone will affect our 740+ credit scores… BUT, can you recommend a way for requesting a “zero balance, paid as agreed” on our credit report? Or do you know how FHA reports this with their short sales???

3. What is the deal with FHA coming back at us for deficiency written off? Are we safe because we are in California? I also thought that if they take the house back in the short sale, it is considered paid in full, and all they can collect???

Thinking ahead, and how this god-awful long process will effect our ability to obtain a loan 2-3 years down the road. Any info on this would be appreciated! Thank you.

Question 1: Yes, but you’ll have to document those issues: /what-are-extenuating-circumstances/
Question 2: It will likely (but not always) it will show the late payments and report in the “collections” section of the credit report saying something like, “creditor settled for less than the amount due.”
Question 3: I believe that CA has banned deficiencies on first mortgages for short sales on primary residences so you should be OK there: http://originatordigest.com/post/1990722/what-does-sb931-mean-to-your-seller-it-means-that-they-re-a-fha-buyer-
Unofficial question 4: Here’s a comprehensive list of waiting periods for you: /waiting-periods/

Andy from Portland, OR, United States

November 6, 2012

Hi Charles, I’m a realtor and have a client with twins that is pregnant with their next child. The home they are in does not provide for the needs of their family (it’s like 1300 sf). They said they did refi in the spring (they bought with 80/20 or 80/15/5 and refied the 1st). What do you know about people short selling for a larger home but at a lower price?

You’re not going to like this answer. The only way I have been able to get transactions like this done immediately after a short sale (VA and FHA) is where the buyer/borrower purchases a home “outside of a reasonable commuting distance” from the property previously sold short. Different lenders have different interpretations of what “a reasonable commuting distance is.” Some take this to mean that one is moving from one MSA to another MSA. Some lenders take a mileage restriction (often 100) and others have a commuting by car restriction (one hour). I hate how vague this is but it is what it is.

If they are not relocating outside of a reasonable commuting distance, the shortest waiting period would be 2 years with Fannie Mae (and a down payment of 20% – or 10 if they can document extenuating circumstances) or 3 years with FHA or VA.

Kelley Rhea from Eugene, OR, United States

November 9, 2012

Is the reasonable commuting distance rule only if you are looking to buy a similar home? we are currently trying to short sale our home due to a 60% wage reduction and have never missed a payment. We are looking at purchasing a home that is $100k less than our current home and smaller but only a few miles away. Can we still get an FHA loan right away?

marilyn from Perry Hall, MD, United States

November 6, 2012

Hi Charles,
We just got a contract for our house on short sale.Me and my sister co own the house and we had a fall-out, we have not been in good terms so we decided to part ways.It is a sort of divorce..We have not been late in payments and we plan to continue paying until we close.Our short sale specialist is trying to do a hafa short sale so that the lender will not go after the deficiency and she said under hafa rules that was implemented lately,lenders are obligued to report to the credit beraeu as paid in full or zero balance which will not have a negative impact on our credit.My husband and I have an excellent credit right now,close to 800 and we don’t have debts.Can we apply for an Fha loan to purchase a house right after( our previous home was not fha), we will settle the short sale?Our problem is we don’t want our kids to transfer schools .Can we buy a cheaper home but in the same zip code?Can we buy a new home as long the selling price of our previous home is more than the new one?If yes can you recommend or help us find a lender who doescthis kind of stuff?We are in the white marsh area in baltimore county maryland.Thank you very much and I hope forcyour response.

Nicole from Lake Wales, FL, United States

November 3, 2012

My husband and I would like to move 1200 miles away to be closer to family and therefore would be relocating our jobs. We purchased a house in 2008 with an FHA loan and have never been late on our mortgage since we purchased. We would like to sell our house and buy / build a new home in Western New York; however, we are about $30,000 to $40,000 underwater. We both have credit scores over 700 and have been current on every single bill since mid 2006. Is there a way to short sale and purchase right away? How much would we need to put down on a new purchase?

The unfortunate part of this is that your current mortgage is FHA. As far as I know, they require a 30 day late in order to approve a short sale: /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/. This late payment would trigger a 3 year waiting period: /waiting-periods/.

John M. from Reno, NV, United States

October 31, 2012

We had to short sale our home do to a motorcycle accident which left me paralyzed in Oct 2010. We did not make house payments for several months prior to the short sale.
The Wells Fargo 1st and 2nd have been completely discharged. We moved into a house that my parents own that was remodled for wheelchair access etc. We haven’t been paying rent to my parents for the last year, to pay for medical expences and credit card debt. My parents would like us to buy the house which is worth about double what they want us to buy it for. They want 150K and its probably worth close to 300K. I was on full time dissablility for 3 months following my accident, and never missed a full paycheck. I am the primary income for my household. My credit is about 660 now and we were over 700 prior to the accident. I don’t have 20% down. but have been employed by the same company for 17 years and my parents are willing to quick claim the property to us, so we can get a loan for the 150K and pay them off. Actually, I would like a bit more to pay off all credit card debt. Does my accident qualify for an exception to get a loan? Or, are we stuck waiting it out? It’s only been a year since the short sale.

Actually, you may be able to do this after one more year using Fannie Mae financing and documenting “extenuating circumstances.” This transaction can be done with a gift of equity from your parents when they sell the house to you. A gift of equity is when you are given equity in a home to buy a home and the money does not have to be paid back. Normally, it is between relatives. This gift can cover the required down payment of 10 or 20 percent (depending on your pre-approval). The key is this. . . You’ll have to wait until you’ve had a full 2 years from the closing of the short sale.

kOSHY from Gilbert, AZ, United States

October 31, 2012

I short saled my home on December 16th 2009, the lender said that my loan will be approved by december 16 2012. Can i look for new homes now and give offer now and close after December 16th or should I wait until December 16 to make an offer for a house or even to look for a house to purchase.
Thanke

You can look and make an offer whenever you want but the application date for your mortgage must be after your waiting period would expire. It sounds like in this case that would be December 17th of 2012.

Koshy from Gilbert, AZ, United States

Bryan from Minneapolis, MN, United States

October 24, 2012

I have a unique situation. I had to do a short sale 2.5 years ago and consequently also a bankruptcy 2 years ago. But recently my wife and her brother have inherited a home. The value of the home is approx 160,000. The home has no mortgage currently (100% equity) and we are trying to pay off her brother for ownership of the home. We only need 60,000 to pay off her brother. Being that there is a 3 year waiting period for a short sale to obtain a fannie mae is there any way to get a loan another way? Any suggestions? For a home equity loan or line of credit, it that still fannie mae? Our credit has been flawless since the bankruptcy credit score is at about 660. Thanks

There is a chance, given the equity position that you have, that you might be able to get a Fannie Mae backed loan by documenting “Extenuating Circumstances.” You’ll most likely need an automated underwriting approval to get this to work, so you’ll probably want to apply online so I can obtain that for you (provided you think you can document extenuating circumstances). Click on the apply online tab above and you’ll see my name. Click that link and you’ll be on you’re way.

Definitely try your bank. It may be wise to try several local banks but be clear with them about the situation and let them know that if they don’t offer a “portfolio” loan, it won’t work. Also, expect the terms to kind of stink. Home equity loans are not backed by Fannie Mae or Freddie Mac.

Bryan from Minneapolis, MN, United States

Nick from Ridgecrest, CA, United States

October 2, 2012

I completed a short sale in AZ on a primary residence in October of 2011. Do to a divorce and reduction in pay. I fell behind on payments on this house prior to the short sale. I moved to another home I owned in California (I bought the California house prior to buying the AZ house) which I have never been late on a payment (9+ years). I owe +- 160K on the CA house that can appraise for over 300K. I have a credit score in the low to mid 700’s and I am now remarried. My wife has good credit also but her name is not on the California house as of now.
I would like to take advantage of the low interest rates.
Am I eligible to refinance the California house? Or are there any other options I/we have to be able to take advantage of the low interest rates?

Due to the lates preceding the short sale, the soonest waiting period that would be applicable would be the Fannie Mae one assuming you can document “extenuating circumstances” (which it sounds like you can). This being the case, you’re on a minimum of two years on the wait (or October 2013). You’ll most likely need an automated underwriting approval to get this to work, so you’ll probably want to get your application going in November of 2013. The good news is, the FED started up another round of quantitative easing so rates should go up too high too quickly.

Brian from Minneapolis, MN, United States

October 2, 2012

I completed a short sale in Dec 2010, unfortunately we were behind on payments. I was told it would be a two year waiting period before I could buy again. Now I am reading they changed the law to 3 years? What can I do? I’m ready to buy now. Credit is in the mid 700’s and I can put 20% down.

Brian from Minneapolis, MN, United States

You’d probably want to write a different one that explained what happened (much of this would be the same as your hardship letter) but would add emphasis on why those hardships won’t adversely affect your capacity to repay the new loan that you’ll be taking. Does that make sense or am I being too much of a geek?

Steve fryer from Puyallup, WA, United States

September 26, 2012

We just tried to apply for a USDA loan and are running into some issues over the amount of money we make . We pay child support and daycare expense but it’s not through court order . All my bank statements show I pay every month and the totals but I can’t use it to deduct from my annual money for USDA limits . Do I need to get court order for child support ?

Jason from Oklahoma City, OK, United States

September 20, 2012

I just completed a short sale and a month later I was approved for an FHA loan for a new house. My situation was a divorce. I have perfect credit and was never late on a mortgage payment. It was very easy to do and it is great that FHA is doing this. I think another stipulation was the fact that I was buying a smaller home in a different area too.

Vicki Cade from Ukiah, CA, United States

September 17, 2012

In the process of a SS due to relocation of my husband’s job. Still paying mtg and dont plan on missing any payments. Never late on any bills. Fico 850+… being told we will still have to wait two years. I find that really annoying since this is a hardship relocation. Already have offer on the house after one week on mkt. Hoping to close soon and move to new town. Would love to buy rather than rent. I assume we can buy again. Any ideas

Relocation is the best hardship you can have with respect to the flexibilities afforded in FHA’s program for people buying immediately after a short sale. The same goes with VA if you’re VA eligible. The key is you can sell short a FHA loan and go into a FHA loan or short a VA loan and go right into a VA loan. If you’re planning on buying in CA, I can help with your pre-approval.

Cheryl M from Le Grand, CA, United States

September 12, 2012

I am about to short sell my home. I know to buy a home I will have to wait at least 3 years to purchase again. My 86 year mother owns her home outright, but is interested in selling it and purchasing a house together as she needs more care and attention. Her home sale would cover approx. 2/3 of the cost of the type of home we are looking at and I would make the payments on the difference as well as taxes and insurance. My question is, can I borrow WITH her, so I can get tax benefits for what I’m paying and work to rebuild my credit and equity?

Jen from United States

September 11, 2012

Hello – I am trying to purchase a home after a short sale 2 years ago. I have a score of 610 but have been told that I can purchase after the 2 year mark but need at least a 680 and 20% down due to the shortsale. I am currently renting for an absurd amount and would like to get out of renting. Is there anyway possilbe that there would be something out there for me currently?

You wouldn’t need a 680 credit score with us but you would need a 640. Once you get your credit score there, you may qualify for 10% down if you can document extenuating circumstances: /what-are-extenuating-circumstances/.

Chaerin P. from Baldwin Park, CA, United States

September 10, 2012

Hello – I’m thinking of doing a short sale because my house is over $200 thousand under. The loan is co-signed with my parents one nearing retirement age and the other should already be retired but still working to help pay the bills. I make about $80 a year and have $80K in savings. Is it possible to do a short sale without the bank tapping into my savings since I am a co-signer?

That’s a lender discretion thing but what I’ve seen in these instances is that those funds are vulnerable if they are in highly liquid accounts like checking and savings but I haven’t seen them factor in 401K’s.

Matt from Las Vegas, NV, United States

August 21, 2012

I own a home with my brother that we bought back in 2007 for $288,000 with an FHA loan. I lost my job soon after and have not regained my financial status to where it was before that time. The whole time we have been seriously contemplating short selling. It has been a very difficult time to keep up with the payments and we have used savings and borrowed money from family to keep on time with our payments. We have not been late on any of the payments since we’ve owned the house. That being said, we are at a time now where we feel that very soon we will not be able to keep the house and may not be able to last more than a few months financially. My ideal situation is to move out of state to purchase a home where I could afford in the $175,000 range. My credit is about average right now. My question is if I short sale my home, what is the time frame you think I would be able to get a new home loan if my circumstances were as follows…. I would be moving about 700 miles away, my girlfriend with great credit will be the primary loan holder(but with me on it as well so both our income will be included in loan), loan will be for about $100,000 less, and down payment will be 3%. It would be ideal if we could move immediately or in about a year, but we wouldn’t be able to wait for 3 years. What would your recommendation be? Does having an FHA loan discount any of the things I mentioned?

Unfortunately having a FHA loan does matter. They currently have a written policy where you have to be at least 30 days to qualify for a short sale. Outside of private label mortgages (i.e. non-FHA, non-VA, non-Fannie Mae, non-Freddie Mac and non-RD loans), FHA is the only one that still has this policy and it’s stupid. If you have a late payment, you’d have a 3 year waiting period for another FHA or VA loan. If you can document extenuating circumstances you might be able to qualify for a Fannie Mae loan after 2 years with 10 or 20 percent down. Otherwise it will be a 3 year wait.

Emily M. from Seattle, WA, United States

Emily M. from Seattle, WA, United States

August 16, 2012

Hi Charles,

First off, great info! Please keep this going. Thank you.

Reading your reply to Donald Reed on 8/13, you stated that the least waiting period after short sale is 3 years. My understanding was that for Fannie Mae, the waiting period is only 2 years for 80% LTV. Can you please confirm?

When replying to Donald, I was trying to keep it in the context of his specific situation. Here’s a comprehensive list of current waiting periods: /waiting-periods/. And actually, Fannie Mae doesn’t necessarily require 20% down after 2 years. It can be 10% down if one can document extenuating circumstances: /what-are-extenuating-circumstances/. This requires an automated approval using their Desktop Originator software and it’s best to use Radian’s “One Underwrite” program for the mortgage insurance.

Donald Reed from Duluth, GA, United States

August 12, 2012

Hi Charles, My wife and I were under water so to speak and were convinced by both our attorney and finance company that we had to stop making payments to get a short sale. This took 18 months. During that time I did eliminate all other debts leaving only the house as a bad credit mark. It has been a year since our short sale and I have retired and want to move from Florida to Tennessee. I do have 20% to put down on a home but have been told I can’t qualify for any mortgages for at least another year. My FICO is about 696. Is there any hope? I have heard about prepurchase such as a lease option to buy but have not had much interest in the Cleveland, TN area. Any input is appreciated.

For any normal mortgage (VA, FHA, RD, Fannie Mae and Freddie Mac) you’ll have a waiting period. The least of these is 3 years due to the late payments but you probably already know this. Here’a a strange idea though. You say you’re retiring, . . . if you’re 62 years old or older, you might try buying a home with a reverse mortgage: http://www.iloanhomemortgage.com/the-new-real-estate-boomers-purchasing-with-reverse-mortgages/. It might require a little more than 20% down but hey, . . no monthly mortgage payment ain’t that bad.

donald Reed from United States

November 6, 2012

Just an update, my wife worked very hard and we found a perfect home and put down 20% and financed for 30 years at 3.25 with a local credit union. This was at only one year after my short sale. It just shows never give up and be willing to work hard for what your family needs D.A. Reed

Kristina from Covelo, CA, United States

November 6, 2012

Hi Donald,

Couple questions:

You were behind payments and still got a loan within a year? Wow! That is great. We are currently in short sale process (7 months in), and are now in closure phase with a buyer for our FHA loan (serviced by BofA).

I am tossing around the idea of paying down/paying off our car loans to reduce debt in order to improve credit score after short sale, but I’m wondering if paying monthly payments instead would be better for improving credit? “No debt” vs. “on time payments”… Any suggestions of what worked for you to boost your credit score after all the derogatory months?

Kristina from United States

Jeff from Minneapolis, MN, United States

August 9, 2012

Charles,

Thank you for your information on buying a home after a short sale. I completed the short sale of my condo in December of 2011. It was needed after a divorce as I had moved (only 30 miles) and couldn’t handle the payments.

Since then my earnings have increased and I am married again. My wife and I have a house, but are looking at moving to another one. We have been told that some smaller banks would lend to us just based on our credit scores (both strong), income (much stronger now), and money we can put down (about 30%). I have called several banks, but have yet to find anyone willing. Do you know of any?

Jeff from Minneapolis, MN, United States

sunjiiv kapur from Louisville, KY, United States

August 11, 2012

Wde had a condo in clearwater fl which we bought in 06 and I had to relocate in april of 09 due to job if I wouldnt had I would had lost my job and since I was upside down on my loan i was left with no option but to do short sale which we tried thru a specialist for 2and half years with no luck then we took everything in our own hand and did the shortsale by ourselves which was finalized this year in may and then the bank has put settled on my credit report my wife who taken chpt 7 in 2010 she did not get hit with that Now my question is will be able to buy a place after one year or will I have to wait for 3 years if I have to wait 3 years is there anybody here in louisville ky you know who could help us

It would depend on whether or not there were late late payments on the mortgage and installment debts in the 12 months prior to the short sale. If there were, it would be 3 years. If there weren’t, then you might be able to go right away unless you needed your wife on the application in which case there would be a bankruptcy waiting period which would follow these parameters: /waiting-periods/

Kelly from Valrico, FL, United States

August 4, 2012

My husband was a stay at home dad when we bought our home so he was on the title but not on the mortgage. I was self-employed, but after my income dropped substantially I changed jobs and my husband began working full-time. Even with the 2 incomes, we were not making enough to pay everything so I stopped paying the mortgage and applied for a payment modification. I was declined twice so we opted to sell the home. I was 12 months delinquent at the time my short sale was completed. His credit score is still 800+ and we have no debt. I’ve heard that because we were married we have to wait 3 years…but I’ve also heard that some lenders may look at our situation from a “financial” aspect vs. an “ownership” aspect…which would allow him to get a loan. Have you heard of this?

I run into this all the time and don’t have a means of getting around it and thus always run into a 3 year waiting period. On a loan application, they’re going to ask about at least 2 things that are going to trigger problems. 1 is 2 years of address history (usually they’ll want payment history). Another is have you owned property in the last 3 years – that’s another trigger. The only way around this is lying and that’s a crime so the waiting period will be 3 years for FHA or possibly 2 under Fannie Mae’s Extenuating Circumstances Rule.

kelly mettler from Brandon, FL, United States

November 7, 2012

Hi Charles, I’m still receiving notices when people comment on your blog. I wanted to let you know that my husband was able to buy another house in September, despite my short sale in February without telling any lies. Our old address was on his credit report and application. He also checked the box as “owned” (versus rented). The original loan was underwritten through Michigan Mutual and immediately sold to Wells Fargo. I don’t know how you choose your lenders, but this may be one to consider. Based on the laws we just got lucky that public records were not checked, but we can’t be the only ones, can we?.

It takes a careful underwriter to catch that trick so many miss it and loans go through. But that will be our little secret. Wells Fargo technically goes by Mortgagee Letter 09-52.

Congratulations though. If you can’t tell by my posts and comments, if it were up to me, I’d rewrite these guidelines to make it way easier to purchase after a short sale (particularly for Fannie Mae and Freddie Mac backed loans).

Sara from San Luis Obispo, CA, United States

August 3, 2012

Good evening- My husband and I are being relocated from California to Nevada with our current employer. We are attempting to do the best thing for our family while trying to think about our credit and the bank (silly I know).. but I am really concerned with “doing whats right”. The only option we have is short selling, as far as we can tell, but we want to purchase as soon as we can, as I don’t want to have to uproot my three teenage girls. We are the one who found this memo (09-52) and took it to both our realtor here in California and the broker we are attempting to purchase with in Nevada. The broker in Nevada is telling us there is a one year seasoning… and is pretty much saying theres no way to pre-approve or to purchase within a year. Is this seasoning thing legit? Or their way of saying thier company won’t talk to us… do I just need to find another lender?

It’s not legit. You need to find another lender. Remember that if you’re trying to use FHA financing for your purchase, should your current loan be a FHA loan, that will be a problem. If it’s not, you’re moving outside of a reasonable commuting distance so, as long as you meet the other provisions of mortgagee letter 09-52, you should be ok. I’m sorry I’m not licensed in Nevada and can’t help.

Nicole from Palo Alto, CA, United States

July 18, 2012

Hello- I really like your articles- very helpful. We are trying to figure out if we can qualify for a home loan now that we have passed the 2 year mark of our short sale. We have heard that Fannie Mae allows for a loan after the 2 years seasoning if you can prove a hardship. Our hardship was that I was part of a job layoff when the company was going through bankruptcy. We have relocated to Texas for my job and would like to purchase a home here. So, my question is if banks are really going by the Fannie Mae guidelines on the 24 months with a hardship and if that would qualify? We do have 10% to put down, but what other qualifications must be met?

Nicole from Palo Alto, CA, United States

July 18, 2012

I love your articles- very interesting! I am hoping you can help me with figuring out what options, if any we might have. We passed the two year mark from doing a short sale on a house in California. The reason for the short sale was due to a job relocation and then a job layoff as the company went through bankruptcy. We have relocated to Texas for my job and would like to be able to purchase a home as rent is so much higher than purchasing. We have 10% to put down and heard that a Fannie Mae loan may allow a waiting period of only 24 months if we can prove a hardship (I would think a job layoff would be a hardship, but not sure)? Are any banks following these guidelines? And what other guidelines would apply for a Fannie Mae loan if there’s the possibility to be able to purchase after two years?

Fannie Mae will back a loan 2 years after a short sale IF you can document “extenuating circumstances” which are defined in another article I’ve written: /what-are-extenuating-circumstances/. I have not seen any lenders do these without getting an eligible automated underwriting decision. You’ll want to first make sure you can document your extenuating circumstance and then find a good loan officer in Texas to take your application and run Fannie Mae’s Desktop Underwriter to see if you can get an automated underwriting approval. I just haven’t heard of underwriters approving these without that automated approval.

Kristina from United States

July 18, 2012

Hi,
We are currently in the process of requesting an FHA Preforclosure Short Sale. Our reason is my husbands job relocation as well as him having an accident (had an amputation) which set us back financially. We listed our house back in February 2012 and received an offer in April 2012. We have been current on all payments, even draining our savings account to keep the payments current. Today, Bank of America is saying the FHA guidelines say that we must be 31 days past due to qualify for the short sale. So, if we do not make a payment for August in order to get the short sale approval, BECAUSE FHA says it has to be that way, will a 30 day late on our credit report prevent us from getting into another mortgage without a waiting period? It is clear that our pay history is stellar, other than this process. Are there lenders that would consider this situation of ours, or are we stuck with a waiting period??? It doesn’t make sense to me that FHA will lend to those who have short saled, as long as their payments were current— when FHA will not allow us to keep our payment current in order to qualify. It makes no sense! Any help or guidance to a lender who could help our situation would be appreciated. We would be looking to buy again within a year after short sale if possible.

Well you’re going to hate this, and I agree with you that it’s insane that FHA operates this way (where they’ll lend to you if you don’t have late payments on a short sale but require you to be late in order to do one), but It is my understanding that FHA does in fact require the 31 days past due to approve a short at this time. Here’s an article I wrote on this subject: /do-i-need-to-be-late-my-mortgage-to-qualify-for-a-short-sale-dont-take-yes-for-an-answer/. I’m afraid that after all of this, you’ll be subject to the longer waiting periods outlined here: /waiting-periods/.

Charles, My ex and i short sold a house one year ago in NM.He lost his job and we went straight to the bank. We were told that due to a flood of defaults that if we did not become delinquent, that they would not even consider it. So we became 120days delinquent on the mortgage prior to the final sell.I have never been late on any other payment and still have other revolving acocunts including a car loan. My credit score is back up to 763. My current and I are interested in buying a house together in a year. He has excellent credit and already owns a house. Do you know how my credit will do? Will I even qualify?

Erik Christensen from Northfield, MN, United States

July 17, 2012

Hi,
Just had a question about getting a loan after a short sale. Back in 2007 I lost my job and my wife was staying home with our kids. Needless to say we short sold the house and started to rent. My credit score is middle of the road on the lower end. We are now looking to get back into buying a house but first off I don’t know where to start and secondly I don’t know what we may qualify for ie FHA etc. if you have a direction I can start I would appreciate it. I would like to get in with as little possible down as possible!

Timmy Whitehead from Springfield, VA, United States

July 16, 2012

I have a chapter 7 bankruptcy in 2009. 6/2012 will be two years after discharge date of the Bankruptcy. My wife didn’t need to declaire bankruptcy, so we negotiated a shortsale in 2011. Which waiting period applies. Bankruptcy or shortsale.

Brooke from Brentwood, TN, United States

July 1, 2012

Hi Charles,
My husband and I had to move out of state for his job. We are selling our house in LA, but it may have to be a short-sale (trying to avoid if at all possible) but the value and what we owe are neck-in-neck. We have owned the house for 9 years. Two years ago my husband lost his job and we had a house fire all at the same time (perfect storm). We missed 3 payments during the period of unemployment. We were going to sell then but a realtor suggested we get a loan modification instead. We applied for a loan modification and were told the delinquent payments would be rolled into the modification. It’s been 2 years and we still have not received the loan modification (besides having been “approved” verbally 1 year and a half ago and an impound account set up a year and a half ago as a condition of the modification that we’ve never received). The delinquent payments were all to be covered by the loan modification (with our new loan principal). I am now afraid we received horrible advice. Since it’s been 2 years that we’ve been strung along (watching our property value drop the entire time by about $45,000), I’m guessing everything we were told was also a bit of a scam. We are now trying to make things right by selling the house (as we started to 2 years ago). I am worried however that those 3 delinquent payments from 2 years ago (that the bank told us not to bother with because of the loan modification) will now come back to haunt us if we end up having to do a short-sale. We have been current on payments since that time. Your thoughts on our situation with the 2 or 3 year waiting period? My husband is a Veteran so he is eligible for a VA loan otherwise. The reason I am concerned about the 2-3 year waiting period is that in our new area, it is more expensive to rent that to own (rentals are hard to find). Rents here are $2,500 to $3,300 a month while mortgage payments are about $1,300 to $2,000. We are trying to get ourselves back on track financially by cutting our losses and reducing our expenses…but finding it impossible at every turn. Thanks for your time.

Funny you should mention using VA eligibility to buy after a short sale. I’ve written on that topic too: /buying-a-home-after-a-short-sale-using-a-va-mortgage/. This will really depend on how your payment history reflects itself on paper (namely on the credit report). If you had those 3 late payments and they were from two years ago and that’s how it shows on your credit report (for instance, maybe it shows a 30, 60 or 90 day late from then but you subsequently caught up and things remained current ever since) then you may be in some incredible luck. FHA’s requirements (and VA broadly uses the same ones) require that you not be late on any installment debt or mortgage payments IN THE 12 MONTHS PRECEDING THE SHORT SALE. Because those happened two years ago, that would fall outside the 12 month requirement leaving you eligible to buy right away provided you stay current through the rest of your short sale and follow the other provisions of FHA’s Mortgagee Letter 09-52 (attached to this article and explained in the video). I think you might actually be in luck. The only way for me to be sure would be to process a pre-approval. Because you’re in CA and I’m licensed there, I can do that for you if you’d like. Here’s the way to get that process under way: http://www.iloanhomemortgage.com/charles-d-dailey/#charles-welcome.

Christine from Albion, NY, United States

July 1, 2012

Charles, I am currently in the process of doing a short sale on my property.
I have never been late on any of my bills. I would like to purchase right away
If I am able to purchase do I have to stay in the same price range as what
My current home sold for?

Price is less relevant than amenities and property details with respect to complying with the notion that you may not buy a “similar or superior home within a reasonable commuting distance” after a short sale using FHA financing unless you’re willing to wait 3 years. If you want to buy right away, you essentially need to take a step down in housing (fewer bedrooms, baths, square footage, older year built. . . stuff like that).

marilyn from White Marsh, MD, United States

December 16, 2012

Hi Charles,,
We are waiting for the bank approval of our short sale,bpo has been done,don’t know the results yet.As I earlier wrote,we have never been late in our payments and the reason for short sale is separation ( me and my sister).Our realtor was able to find us a lender who prequalified us for $395,000- the contract price of our current home.We originally bought the house for $529,000 but the value has gone down so bad.It. might just appraise for $400,000..The lender says we can buy in the same zip code(by the way he already talk to the underwriterabout this.We went to Ryan homes,a builder here in Maryland and they said we have to try their in house lender which is nvr mortgage first before using other lenders.If they do not approve the loan,then we can use the other lender and still get the incentives they give.There is a gray area though in the fha letter which says that we cannot buy a house that is similar or superior to our sold home.We asked this to ryan homes because square footage wise,our previous home will still be bigger,and more baths but the price of the new home will be more.So they let us run the options that we want and it reached 431,000 ,still with lesser square footage,less bathooms,just vinyl front and our previous home was stone finish and they said they will submit it to the underwriter.You are right the the price is less of a factor and the square footage counts a lot (this is also the analysis of the financial officer of ryan homes- price is not just the determining factor but it helps that it should be lower )but I do not know what the underwriter will say because he/she will be the one to decide.Ryan homes said this is the first time they are handling our situation-short sale due to separation and they are asking me to write a letter of explanation why me and my sister cannot coexist.I plan to give my letter of hardship that I submitted to chase but I read in one of your responses that you recommended to write a new one .Your blogs are very helpful and informative.Thank you very much and I will keep you posted on the results after the underwriter decides.Hopefully it is a positive result.What are your thoughts about this?

There are no grey areas in this actually. If you buy a home that’s outside of a reasonable commuting distance from your previous property, you can buy whatever you want. Different underwriters define reasonable commuting distance differently from one another but if you’re buying in the same zip code, you’re buying inside of a reasonable commuting distance. If this is the case, it triggers the similar or superior guideline. So, if you have to buy something that is not similar or superior to your previous property, that essentially means that you need to take a step down in housing. New construction is a big obstacle. I’ve only been able to get one done in my career. It’s a big obstacle to overcome in proving the step down in housing. Almost all of the other elements should be steps down but definitely the big ones: square footage, bedroom count, bathroom count, level of finish and acreage. If you were my customer, I’d tell you that I’d try but I’d give it 50/50 odds and do what I could to dissuade you from taking such a risk. Good luck though. I do hope it works!

marilyn from White Marsh, MD, United States

December 18, 2012

Hi Charles,
Thanks for sharing your thoughts about our situation.And yes,You are exactly right,ryan homes just want us to apply for the loan and see if the underwriter approves of it.Like you said and I agree it will be a 50/50 chance.Thank you very much forvtakingvtime responding to my inquiry and have a wonderful holidays!

Julie from Murrieta, CA, United States

April 24, 2012

Charles, hoping that you can help. My husband and I are getting ready to shortsale our home. The hardship will be that my husband has taken a new job more than 1000 miles from our current location. We have never missed a payment and don’t plan on missing any throughout the shortsale. Our other credit is excellent over 800, no lates, ever. We have no other debt and excellent income. The house we want to buy will be much smaller than the one that we are selling. We want to purchase immediately, would have to be FHA and we only will have 3.5 to 10% to put down. I keep hearing that we will need 20% down, as the PMI companies will have no part of us getting a loan. Is there a minimum that we need to put down? My R/E agent in Northern California, where we want to buy, is basically ignoring us and saying that there is no way that we will get a new loan immediately, only after two years. I think we need a new agent. Thanks for any advice that you can give!

Laura from Orange Park, FL, United States

January 29, 2012

Mr. Dailey, We have not been able to sell our home and our realtor has been trying to convince us to short sale. We currently have a conventional loan owned by Bank of America. My husband has an hour and 10 min commute to and from work everyday. We are trying to get back to the area he works because the commuting and house payment forced us into a tidey sum of debt on credit cards and caused me to have to take a part time job. We have not missed any payments on anything ever! ( I do have a partime job waiting for me in the same field in the area we need to back to) My husband is eligible for a VA loan. Will we be able to buy right away with a VA or do we have to wait? There is no way we can save 20% for down payment on FHA. PLUS>>I have 3 dogs and fear nobody will rent to us. I am terrified. Thank you for your advice

[…] Sale is an Excellent Mortgage Credit Risk Tweet While lenders will admit that it’s technically possible to provide mortgages to homebuyers who recently had a short sale without a waiting period, most […]

Marci from Port Saint Lucie, FL, United States

July 9, 2011

My husband and I did a short sale due to us separating. Our payments were current and our credit is around 700
We have reconciled our marriage and we can’t get a Loan on another house. We were promised we could get a loan
And have list alot of money trying to buy a house. both tomes they said no it was too soon from our short sale. We live in florida can you help?

You should be able to. It may not be exactly what you’re looking for because you do need to downsize so to speak in order to meet FHA guidelines (that or relocate). We’re not licensed in FL but shoot us an email and we’ll try and find someone who can help you down there.

Mary Ann from Turlock, CA, United States

February 26, 2011

My husband did a short sale before we got married. He went through many letters and phone calls with the bank to get some type of options (loan modifications, etc.) to help him out in his 5 year no interest loan. Unfortunately, the bank stated there was no options at that time and they did not know when they have any. My husband was always on time with his mortgage payment and never missed a payment until the short sale which was requested through his real estate agent. She said in order for the short sale to be process he has to be at least 1 payment behind. He put the house up in March 2009 and closed the home in May 2009. He has been told since the house was sold quickly and was not passed 60 days, in foreclosure or in default that he could possibly buy a home now and not wait the 3 years. A real estate agent pulled his credit and did the numbers and he got pre-approved. We have heard many stories about buying a home after a short sale and it’s becoming real confusing. One person says this and one person says that. I just want to know one answer. The right one. We want to buy home now. Can we?

Short sales do not necessarily require that you be in default in order to get approved (http://activerain.com/blogsview/1421780/short-sales-do-not-require-a-delinquent-mortgage-imminent-danger-of-default-). I know that some mortgage insurance companies require it but it is not typically so. For FHA, they require that you be current on the mortgage and other installment debts at the time of the short sale if you are to be eligible for purchasing inside the 3 year waiting period. In your case, it looks like May of 2012 would be when you’d be eligible to purchase using a FHA loan. Fannie Mae allows a 24 month period if there are extenuating circumstances to the short sale (loss of job, divorce, serious illness) but they require 20% down at the 24 month marker, 10% at the 4 year marker and won’t give full eligibility until a 72 month waiting period has elapsed (http://iloanminnesota.com/2010/11/02/waiting-periods/).

I know this might be disappointing news but this is accurate information and it seems that you’re looking for the right answer.

Amy from Chana, IL, United States

January 27, 2011

Our short sale took place in April 2009 in Nebraska. We had to move for a job relocation, so decided to do a short sale because our home had been on the market for 2 years. We fell behind on our mortgage and ended up closing in April 2009. Our credit dropped to low 650. We had always had great credit and had never been late on any payments until our short sale. We are now wanting to buy a home in Illinois, and have had no luck with getting a FHA loan. Is there anything we can do to speed up the process, or do we have to wait more then 2 years to buy a home again?

If there were any late payments on the mortgage prior to the completion of the short sale, then FHA would require a 3 year waiting period. It would appear that you might have a little more than a year to wait just yet. I’m sorry Amy.

Nancy from Englewood, FL, United States

January 4, 2011

I find this article very interesting because I did a short sale in Aug 2010. Never late on any payment 30 plus years including the short sale. No bank will even look at me even though my short sale was due to an illness in the family. Credit score just above 700.

Paul Michel from Antelope, CA, United States

December 31, 2010

Well where to start…To make a long story shorter I purchased a home with my then fiance for about 411K, subsequently she left and I was stuck with the house and 360K mortgage, a terrible loan (pick-a-pay) and it was coming current at the sum of 3000+ a month which was not doable for me. My bank agreed to do a short sale. I thought I was going to be unable to purchase again for several years. After doing some research I found this geeky guy Charles Dailey. Just so happens Charles is licensed in California along with several other states.. Well to sum it up I had good credit to begin with, never missed a payment on my mortgage and was current for the last 12 months on all other bills. Charles knew the rules better than the people who made them. Every time they said no he sent them a strongly worded email stating the rules and telling them to do their homework, because it was obvious he had. My short sale closed on 5-7-10 I stewed around for a few months, my first contact with Charles was on 9-3-10, and I closed on my new home 11-22-10. I cant give enough thanks to Charles for the work he put in and what he did for me.

Rose from United States

October 31, 2010

As a person who has just gone through a shortsale, I found this posting very interesting. I had to sell my home as I was moving out of the area, so it was short sold. The only thing is that I was a few months late at the time I short sold it. My credit score today is 656, even though the short sale happed last July. I was hoping to get my credit score up and buy a new home in my new location by next July. What do you think my chances are in doing this? I think my original loan was conventional and I would be going VA with my next loan.

I’m sorry to say this but being even a few months late at the time of selling short would extend the FHA waiting period from having none to a 3 year wait. I believe the VA waiting period is the same or similar. I’m sorry Rose.